Chapter -1 Introduction and Research Methodology Chapter 1 Introduction and Research Methodology Index: . 1.1 Introduction 1.2 Importance of the study 1.3 Statement of the problem 1.4 Relevance of the study 1.5 Objectives of the study 1.6 Scope of the study 1.7 Limitations of the study 1.8 Statement of Hypothesis 1.9 Research Methodology 1.9.1 Research design 1.9.2 Environmental scan (Secondary Data) 1.9.3 Primary Data 1.10 Techniques of Analysis 1.11 Review of Literature 1.11.1 Books 1.11.2 Reports 1.11.3 Address 1.11.4 Articles 1.12 Chapter Scheme 1.13 References Chapter 1 Introduction and Research Methodology 1.1 Introduction: India is among the ten fastest growing economies in the world . The Indian economy has been growing at a steady rate of 8.5 % to 9% over the last five years. From an annual average growth rate of 3.5 % during the 1950 to 1980, the growth rate accelerated to 6% in the 1980s and 1990s and 9% in 2004 to 2008^* However, these positive trends are accompanied by a paradox- the 'other' side of India of poverty and inequality. Despite of substantial progress in various fields, it is disheartening that handful of populace is still languishing in the vicious circle of poverty and is cast aside.'"A shocking 30-35% of India's total population still lives below the poverty line . Poverty, accompanied by low health and nutrition levels, high infant mortality and illiteracy, is almost uniform in both rural as well as urban areas. 'As per the Indian definition of income needed to acquire food to provide the minimum required calories (2100 for rural adults and 1800 for urban adults), roughly 26% of population falls below the poverty line. According to annthpr definition of poverty- those living on less than $1 per day- 40% of )n fall below poverty line'*, sixty five years after independence, these are statistics and questions about the effectiveness of our policies and efforts v'erty is not the only problem faced by poor, but another characteristic of their financial exclusion. Financial services actively contribute to the 1 ''onomic development of the society. These leads to social safety net £ ue people fi^om economic shocks. But in India, almost half the country i' . per NSSO Survey 59'" Round, some key statistics regarding the exte.a of financial inclusion in India are as follows: 1) 41%) of the Indian population is unbanked (80 million households). Out of this, 40 % is unbanked in urban areas and 60 % in rural areas. Only 14% of adult population has credit accounts with formal financial institutions. 2) Out of the 203 million households in India, 147 million households are located in rural India. Out of these rural households, 89.3 million households are famer households. 66 percent of farmer households are marginal farmer households. 3) 51.4%) farmer households (45.9 million out of 89.3 million) are financially excluded from both formal and informal financial sources. 4) 27% farmer households have access to formal sources of credit. Among non- cultivator households nearly 80% do not access credit from any source North- East, Eastern and Central India account for 64% of all financially excluded farmer households in India. 5) Overall indebtedness to formal finance sources is 19.66% in these three regions. Geographically, 256 districts (out of 640 districts) representing 40 % of total districts in India, spread over 17 states and 1 UT have critical credit exclusion thresholds in respect of access to formal credit. 6) The proportion of people having some form of life insurance cover stands at 10% and people with any form of non-life insurance cover stands at less than 1%. There are only 3.1 policies per thousand people in India (2007) In short, exclusion is staggering whichever parameter one chooses to look at. The above statistics underline the desperate need for financial inclusion. The correlation between financial inclusion and economic growth has long been widely recognized low financial inclusion impedes economic growth. Access to easy and affordable credit by the disadvantaged social groups is acknowledged as a key criterion for poverty alleviation and reducing social inequity. The need for financial inclusion has always been recognised in the policy framework for the development of the formal financial system in India. In fact the decision to nationalise the private banks in 1969 indicates that financial inclusion has been in existence in a disguised form in the Indian economy. The RBI has continuously stressed the need for financial inclusion and has undertaken number of financial inclusion initiatives right from 1960s till date. 1. Focus on increasing credit to the neglected economy sectors and weaker sections of society 2. Development of the rural banking ecosystem including RRBs, rural and semi- urban branches Implementation of the social contract with banks 3. Lead bank scheme launched for rural lending 4. Branch licensing policy to focus on expansion of commercial bank branches in rural areas 5. Establishment of National Bank for agriculture and Rural Development (NABARD) to provide refinance to banks providing credit to agriculture. 6. SHG-Bank linkage program launched by NABARD 7. The term Tinancial Inclusion' introduced for the first time in RBIs Aimual Policy Statement for 2005-06. 8. Banks asked to offer 'no-frills account', General credit card facility at rural and semi-urban branches 9. Know Your Customer (KYC) norms simplified 10. Banking Correspondent and Banking Facilitator concept introduced to increase out-reach 11. 100 percent financial inclusion drive launched 12. Restrictions on ATMs deployment removed The last seven years have seen a renewed thrust on financial inclusion in India. Initiatives like the SHG-Bank linkage program have resulted in millions of Indians participating in the formal financial ecosystem resulting in marked improvements in their lives. There has been a huge upsurge in micro finance initiatives with some micro finance institutions (MFI) acquiring national footprints. Greater financial inclusion often leads to an increase in economic prosperity which has a positive influence on inclusive growth. 1.2 Importance of the study: The XI five year plan (2007-2012) of India aimed at achieving a new vision of growth- "Towards faster and more inclusive growth"^. The regional imbalances and inequitable distribution can be corrected by means of inclusive growth. The term 'Inclusive Growth' emphasises ensuring that the economic opportunities created by growth are available to all - particularly the poor- to the maximum possible extent. Inclusive growth is a growth phase by which all sections and all regions of the economy are benefitted. An inclusive growth is not possible without financial inclusion. Financial inclusion is desirable for many reasons: 1. It facilitates efficient allocation of productive resources. 2. It brings about improvement in day to day management of financial resources. 3. It can reduce the growth of informal sector which is often exploitative. 4. It is a precondition for accelerating growth and reducing income disparities and poverty. 5. It enables economically and socially excluded people to protect themselves against economic shocks. 6. It is crucial to reduce poverty. Greater access to finance can help poor to build their assets and support income generating activity. 7. It is also important in achieving the Millennium Development Goal of eradication of poverty. 8. It is essential for fostering economic growth in a more inclusive maimer. Globally, financial inclusion drive gained a momentum lately as is reflected in various projects, reports and research being conducted by the international organisations like the World Bank and IMF. In India too, financial inclusion efforts have gained a reasonable prominence. The XI five year plan envisions inclusive growth as the key objective. Various initiatives have been undertaken by RBI towards fulfilling the objective of financial inclusion. Though much work has been done about financial inclusion at national level, the initiatives of the Public Sector Banks and Agricultural Credit Co-operative Banks in inclusive growth has not been studied at micro level. Hence researcher has selected the proposed topic for the study. 1.3 Statement of the problem: • Globally it is estimated that 2 billion people are currently excluded from access to financial services from formal sector. Of the six lakh villages only 30,000 villages have bank branches. In case of India, it has highest number of households (145 million) excluded from banking. Only little less than 20% of the population has any kind of life insurance and 9.6% of the population has non-life insurance coverage. Just 18%) have debit cards and less than 2%o have credit cards. In short, exclusion is staggering whichever parameter one chooses to look at. This excluded population has to be brought within the banking folds. The main reasons such as poverty, illiteracy and lack of information regarding banking are the major roadblocks that hold back financial inclusion. In order to find the extent of inclusion in Ahmednagar district and to find the probable solution to overcome the problem of exclusion in the district, researcher had selected the topic. 1.4 Relevance of the study: Relevance of the study is reflected in the following points: 1. By studying the people who are not included we would come to know the problems faced by poor in having access to banking field. 2. Various studies in Maharashtra regarding farmer's suicide by Indira Gandhi Institute, TATA Institute of Fundamental Research, Gokhale institute of Politics and Economics, Pune, Dr. Narendra Jadhav Committee have clearly stated that the victims committed suicide because they were unable to repay the debts they owed to money lenders. Lakhs of farmers committed suicide in Maharashtra and the reason somewhere was non access to bank finance.